Legal Governance of Sharia Banking in Indonesia: Examining the Implementation of Law No. 21 of 2008 concerning Sharia Banking

Abstract

This study investigates the legal and institutional dimensions of Islamic banking regulation in Indonesia by analyzing the implementation of Law No. 21 of 2008 concerning Sharia Banking. It aims to understand how the law constructs the legal identity of Sharia banks, how regulatory bodies enforce compliance, and what challenges arise in aligning Islamic principles with the national legal system. Using doctrinal legal analysis supported by institutional and Islamic jurisprudence theories, the study draws upon statutory sources, regulatory documents, and scholarly literature published before 2009. The findings show that although the law formally legitimizes Sharia banking, its practical implementation is hindered by regulatory fragmentation, overlapping institutional jurisdictions, and the absence of codified Sharia governance mechanisms. The study also highlights the difficulty of harmonizing Islamic financial norms with secular legal principles in contract enforcement and regulatory interpretation. These issues limit the effectiveness and doctrinal integrity of Indonesia’s dual banking system. The research contributes to scholarly debates on legal pluralism and regulatory design, offering recommendations for institutional reform, Sharia standardization, and enhanced judicial capacity in Islamic finance. The findings are relevant for policymakers, legal scholars, and financial institutions aiming to build Indonesia's coherent, enforceable, and ethically grounded Islamic banking sector.